Cost of living pressures

Cost of living pressures put more residents at risk of poverty in the capital


London has an unequal and precarious labour market

London has historically had one of the most unequal labour markets in the country. The capital has the highest salaries in the UK, but also higher than average unemployment and in-work poverty. Addressing this inequality and helping unemployed residents into good work is a key priority for local authorities in the capital.

Recent research – carried out by WPI Economics on behalf of Central London Forward – highlights the extreme levels of inequality and poverty in central London.

Across England as a whole, the 20% highest earners earn just over double that of the bottom 20%. However, with concentrations of both very high earners and people in more poorly paying jobs, this earnings ratio is significantly higher in every central London borough, ranging from 2.59 in Lewisham to 3.02 in Westminster.

More than 300,000 employee jobs (13%) in central London boroughs are paid under the Living Wage Foundation Living Wage rate (WPI Economics, 2021).

Not only is London’s labour market highly unequal in terms of pay, it is also unequal in terms of conditions. There are a significant number of people in precarious employment living in the capital. This includes those on casual, agency or zero hours contracts, or low-paid self-employed who risk missing out on key workplace rights and protections. The TUC estimates that 11% of workers across London are in insecure work. This is higher than the North East, North West, Yorkshire and Humberside, and East Midlands (TUC, 2021).

These inequalities in pay and job quality mean that despite higher average wages, many workers in central London struggle to meet London’s high costs of living. Poverty rates in Inner London stood at 22% going into the pandemic, 5 percentage points higher than the average across the rest of England (17%). Close to six in ten (58%) people in poverty in Inner London live in a working household (WPI Economics, 2021).

These labour market challenges have been deepened by COVID-19. London saw the highest fall in jobs, highest number of employments furloughed, and still has the highest unemployment rate of any region in the UK. The unprecedented level of labour market support provided by the government ensured that far fewer jobs were lost than otherwise would have been the case.

The economic climate is becoming more challenging for people on lower incomes

Increases in energy bills, food and fuel prices has led to a rise in inflation to 4.2%, the highest level since December 2011. This increase in inflation – coupled with the removal of the £20 Universal Credit (UC) uplift – is putting additional pressure on household budgets for many across central London. The National Living Wage increase and reduction in the UC taper are a welcome step to assist lower income families. However, with inflation expected to remain high, and increases in national insurance contributions in April 2022, many lower income families and those hardest hit by the pandemic will continue to face financial pressures. Recent IFS analysis found that an individual with an annual salary of £30,000 in April 2021 would need to see a 7% increase in wage growth in April 2022 to maintain the same standard of living (IFS, 2021)

Addressing and tackling this inequality is vital to ensure a strong and inclusive economy in London. Local authorities and London government are committed to addressing these challenges, including through promoting the London Living Wage, and ensuring residents are able to access high quality employment and skills support. The two employment programmes managed by Central London Forward – Central London Works and JETS – supported over 900 Londoners into work last month alone.

London needs the tools and resources to address these challenges

The government is currently finalising plans for the UK Shared Prosperity Fund (UKSPF), which will replace EU funding for employment, skills and economic development post-Brexit. Details are likely to be announced in the ‘Levelling Up’ White Paper in the New Year.

Given the scale of inequality in London, and the significant impact of the Coronavirus jobs crisis on the capital, continued investment in employment and training support is more important than ever.

However, recent government grant schemes have short-changed the capital. London received under 2% of the UK Community Renewal Fund (UKCRF) – a precursor to the UKSPF – despite having over 13% of the population and higher levels of poverty and inequality than other areas.

In order to tackle inequality and support levelling up within the capital, London should receive at least as much funding from the UKSPF as it received from the EU funds it replaces.

In addition to the quantity of funding, how the funding is allocated matters too. The approach to allocating the UKCRF and the Levelling Up Fund represent a significant step back from decentralisation, with decisions made in Whitehall, rather than in town halls closer to the communities themselves. For UKSPF to deliver levelling up within regions it must be devolved to local areas, to those who understand the local communities in order to invest the funding in a way that meets local needs.

 Efa Gough is a Policy Officer at Central London Forward. The research on inequality in central London carried out by WPI Economics can be found here.